European Antitrust Fine for Microsoft
A $357-million fine levied against Microsoft Corp. on Wednesday reflects the European Union’s frustration over the software giant’s failure to comply with key provisions of a 2004 antitrust order.
The fine was the first for antitrust noncompliance in the 49-year history of the EU and stems from the company’s reluctance to share information about its flagship Windows operating system.
Wednesday’s penalty follows a record $613-million fine that the company paid in 2004 for violating antitrust rules and demonstrates how decisively European regulators have taken the lead in trying to temper Microsoft’s overwhelming market power.
The EU Competition Commission said the software giant would face additional fines of $3.82 million a day, beginning July 31, unless it provided “complete and accurate technical specifications” for software developers who create products that must operate with Windows on PCs and server computers that operate networks.
Some analysts doubted whether fines alone would change Microsoft’s tactics. Based on the company’s 2005 earnings, for instance, Wednesday’s fine amounts to about 11 days’ worth of profit. Microsoft earned enough to cover the proposed daily fine every two hours and 45 minutes.
But Andrew Gavil, a law professor at Howard University, said the ruling foreshadowed careful scrutiny of Vista, the next major revision of Windows, due out early next year.
“The question is, will Microsoft bend its knee and realize that as a monopoly, it must fundamentally alter its business strategy?” he said. The company historically has added features or products to Windows while keeping rivals in the dark.
EU Competition Commissioner Neelie Kroes hinted Wednesday that European antitrust regulators would continue to pressure the Redmond, Wash., company.
“It is now more than two years since the commission’s March 2004 decision that found Microsoft to be in violation of the EU’s antitrust rules by abusing its dominant market position,” Kroes said. “The European Commission cannot allow such illegal conduct to continue indefinitely.”
Microsoft General Counsel Brad Smith said the company would appeal to the European court system. The company had appealed the original antitrust decision, and a ruling from the Court of First Instance, equivalent to a U.S. court of appeal, is expected in about six months.
“We do not believe any fine, let alone a fine of this magnitude, is appropriate given the lack of clarity in the commission’s original decision and our good-faith efforts over the past two years,” Smith said. “Microsoft remains totally committed to full compliance with the commission’s 2004 decision.”
That ruling required the company to share technical details of Windows with its software rivals. It was intended to mitigate Microsoft’s advantage in creating products that work smoothly with Windows, which is used on more than 90% of PCs.
Microsoft said that once a clear definition of requirements was received in April, it deployed hundreds of technical experts to comply and would meet the commission’s July 24 deadline for delivery of the final documents.
“It is hard to understand why the commission is imposing this enormous fine when the process is finally working well and the agreed-upon finish line is just days away,” Smith said.
Kroes countered that Wednesday’s fine reflected concern by the EU that Microsoft had been dragging its heels. “I don’t buy Microsoft’s line that they did not know what was being asked of them,” she said.
Some industry experts, though, regard the EU move as little more than protectionism.
“If Microsoft were a European company, they’d be getting subsidies from all the governments and protection against competition,” said Jeff Tarter, founder of U.S.-based industry newsletter Softletter. “This is why European software companies are on their last legs.
“They should remember who won the war,” he added, referring to World War II.
Former Justice Department antitrust attorney Robert E. Litan, now a senior fellow at the Brookings Institution, said Microsoft’s deep pockets limited the EU’s ability to correct antitrust violations and underscored the fruitlessness of continual oversight.
Litan instead suggested the superiority of a remedy considered but rejected in the U.S. -- breaking up the company. In theory, a breakup could address a more fundamental problem with the Microsoft monopoly -- the failure to boost a stagnant stock price for the last five years.
“Breakup is not the end of the world,” he said. “It can be a jolt to competition.”
Microsoft shares fell 46 cents to $23.70 on Wednesday.
